WRITTEN STATEMENT FOR THE RECORD HON. CHRISTIAN … · One of counties’ greatest concerns about...

WRITTEN STATEMENT FOR THE RECORD

HON. CHRISTIAN LEINBACH

COUNTY COMMISSIONER

BERKS COUNTY, PENNSYLVANIA

ON BEHALF OF THE NATIONAL ASSOCIATION OF COUNTIES

HOW RECENT LIMITATIONS TO THE SALT DEDUCTION HARM COMMUNITIES, SCHOOLS, FIRST

RESPONDERS, AND HOUSING VALUES

BEFORE THE COMMITTEE ON WAYS AND MEANS SUBCOMMITTEE ON SELECT REVENUE MEASURES

UNITED STATES HOUSE OF REPRESENTATIVES

JUNE 25, 2019

WASHINGTON, D.C.

1 | National Association of Counties June 25, 2019

Chairman Thompson, Ranking Member Smith and members of the Committee, thank you for the

opportunity to testify today on impacts of capping the state and local tax (SALT) deduction.

My name is Christian Leinbach and I serve as a county commissioner in Berks County, Pennsylvania.

Berks County is home to 418,000 residents, and we provide a wide range of services to our constituents,

including public safety, emergency services, solid waste removal, veterans services, human services and

child welfare programs, and more. While we are strong partners with our state and the federal

government, we predominantly rely on local property taxes to develop a healthy, safe and vibrant

community.

In fact, counties are highly diverse, not only in my state of Pennsylvania, but across the nation, and vary

immensely in natural resources, social and political systems, cultural, economic and structural

circumstances, public health and environmental responsibilities. Of the nation’s 3,069 counties,

approximately 70 percent are considered “rural,” with populations of less than 50,000, and 50 percent

of these counties have populations below 25,000. At the same time, there are more than 120 major

urban counties, which collectively provide essential services – including education and public safety – to

more than 130 million people every day.

Collectively, counties own 45 percent of America’s roads, nearly 40 percent of bridges, 960 hospitals,

more than 2,500 jails, more than 650 nursing homes and a third of the nation’s airports. We also own

and maintain a wide variety of public safety infrastructure and we are the first responders when a

disaster hits or an emergency occurs. Counties also prevent against public disease outbreaks and tackle

some of the most devastating incidents in our communities, including the opioid epidemic.

Regardless of location, size or scope of services, all counties rely on the SALT deduction to meet

constituent needs and demands. The SALT deduction is a unique and integral part of the federal-state-

local government relationship – it is alone among tax deductions in representing a tax expenditure that

is not a voluntary payment from an individual. In that sense, we believe the SALT deduction should not

even be scored as a federal tax expenditure, since it represents taxes already paid by individuals that

should therefore be exempt from federal taxation.

To that end, I would like to share three key points in urging your support for restoring the full SALT

deduction:

1. The history of the SALT deduction establishes a clear precedent for the necessity of the

deduction, and it dates back to principles set down by the nation’s founders;

2. Capping the SALT deduction hurts the middle class, particularly homeowners; and

3. A capped SALT deduction results in a strain on county services and represents federal intrusion

into state and local taxing decisions.


The History of the SALT Deduction

The SALT deduction was included as one of the six deductions allowed under the original federal tax

code when it was enacted in 1913. State and local taxes date back to 1700, well before the institution of

the federal tax code, and lawmakers at the time understood deductibility was vital to preserve

autonomy and independence of local taxing decisions. When the 16th Amendment was ratified in 1913,

critics at the time worried that the federal government would use this new power to overwhelm statue

authorities and autonomy. However, the drafters and defenders of the 16th Amendment intended for

the federal government’s income tax powers to be constrained by the sovereign tax authority of states

and local governments – essentially, to include a SALT deduction. That is reflected in the original 1913

tax form, which I have included as part of this testimony.

However, the history of the SALT deduction pre-dates the original tax code: in 1862, the federal

government instituted a small tax to help finance the cost of the Civil War. Included in this first federal

income tax of three cents was a deduction for local taxes paid. A copy of the 1862 tax instruction is also

included as part of my testimony.

The theory behind the deduction extends all the way back to the organizing of our government. In

Federalist Paper #31, Alexander Hamilton argued that the taxing powers of the federal government

should not become so great as to absorb “all the resources of taxation,” ultimately at the exclusion of

state and local taxation. (In fact, since the introduction of the federal income tax, there have been

points at which an individual’s tax burden would have exceeded 100 percent were it not for the SALT

deduction.) By allowing for such a deduction, states and local governments would be free from federal

intrusion into their taxing decisions.

More recently, efforts to cap or eliminate the SALT deduction faced stern opposition during the 1986 tax

reform efforts. Former Sen. Daniel Patrick Moynihan (D-N.Y.) noted in 1986 that eliminating the SALT

deduction would “vastly enlarge the scope of the federal government [and] unduly burden state and

local governments.” He added that the foundation of the SALT deduction is that there are “arenas of

government that must not be invaded by other governments.”

This historical backing for the SALT deduction is grounded in this support for state and local control over

our own taxation decisions. Counties strongly believe that no federal law or regulation should preempt,

limit or interfere with the constitutional or statutory rights of states and local governments to develop

and operate our own tax systems to the benefit of our constituents. Such a system ensures that states

and local governments have the means to provide public safety, education, infrastructure and more to

our residents. Capping the SALT deduction provides a new and significant obstacle for local

governments.


Elimination of the SALT Deduction Hits the Middle Class

One of counties’ greatest concerns about the impact of capping the SALT deduction is the potential

impact on the middle class, particularly homeowners. When an individual or family is unable to fully

deduct their state and local taxes from their federally taxable income, the result is an exposure to

double taxation. As I stated earlier – state and local taxes are not voluntary payments for taxpayers. A

capped SALT deduction results in many families being forced to pay taxes on the same income twice,

depressing their earnings and reducing their available income.

This is particularly true in Berks County. In 2016, the latest year for which data is available, over 60,000

individuals and families in our county filed tax returns utilizing the state and local tax deduction.

According to an evaluation of IRS data by NACo, the average SALT deduction in Berks County in 2016

was above the $10,000 SALT cap set by the recently enacted Tax Cuts and Jobs Act, meaning many of

these filers were potentially exposed to double taxation during the 2018 filing season.

This is not an issue that only impacts the wealthiest in our communities. In fact, in Berks County, over 91

percent of those claiming the SALT deduction in 2016 were taxpayers making less than $200,000.

Furthermore, it is an unfortunate double standard that individuals face a capped SALT deduction, while

businesses remain fully able to deduct state and local taxes.

Capping SALT Disrupts Local Tax Authority and Strains Local Services

Given the county reliance on property taxes, forcing double taxation on middle class homeowners

presents a significant intrusion and downward pressure on local property tax decisions. Counties already

face property tax caps in 45 states across the country, and a capped SALT deduction further limits the

tools counties have available to finance the vital services we provide.

As families face double taxation and see their tax bills rise, they are turning to the level of government

closest to them to seek tax relief: counties. Though these changes occurred at the federal level, our

constituents seek out their local elected officials they run into the grocery store for help, just as they do

with any other issue that arises in the community.

County leaders must now weigh the consequences of this federal change. Counties across the country

operate on balanced budgets, with each dollar raised and spent strictly accounted for, whether it is

raised through a property tax, local sales tax or local income tax. Under normal budgeting

circumstances, a reduction in tax revenue must be offset by an equal reduction in services.

At the county level, this can mean real consequences: reductions in police or fire personnel, a delayed

infrastructure project, or a postponed affordable housing project. This is particularly true for public

education, as the majority of property tax dollars are earmarked directly for K-12 education. In fact, in

some states, counties are simply the property tax collector and subsequently give out over 90 percent of


the revenue collected for other purposes. In short, by capping the federal SALT deduction, Congress is

asking counties to choose between the vital services we provide our residents.

Conclusion

Chairman Thompson and Ranking Member Smith, thank you again for inviting me to testify here today.

The SALT deduction allows every state – red, blue or purple – the autonomy to make its own taxing and

spending decisions, and the freedom to determine the tax system that works best for that state.

Counties provide frontline services to our constituents, and we rely on this autonomy to be able to

determine which services and resources best meet the needs of our communities.

We appreciate the bipartisan efforts that have been brought forward to ease the burdens of the capped

SALT deduction. While we support these temporary measures, counties across the country need the full

restoration of the SALT deduction in order to restore the intergovernmental balance of income taxation

and reinstate autonomy of our tax systems.

1I.R.S. SPECIFICATIONS TO BE REMOVED BEFORE PRINTING

DO NOT PRINT — DO NOT PRINT — DO NOT PRINT — DO NOT PRINT

TLS, have youtransmitted all Rtext files for thiscycle update?

Date

Action

Revised proofsrequested

Date Signature

O.K. to print

INSTRUCTIONS TO PRINTERS1913 FORM 1040, PAGE 1 OF 4MARGINS; TOP 1⁄2”, CENTER SIDES. PRINTS: HEAD TO HEADPAPER: WHITE WRITING, SUB. 20. INK: BLACKFLAT SIZE: 81⁄2” x 11”PERFORATE: ON FOLD

TO BE FILLED IN BY COLLECTOR. TO BE FILLED IN BY INTERNAL REVENUE BUREAU.

List. No.

District of

Date received

Form 1040.

INCOME TAX.THE PENALTY

FOR FAILURE TO HAVE THIS RETURN INTHE HANDS OF THE COLLECTOR OFINTERNAL REVENUE ON OR BEFOREMARCH 1 IS $20 TO $1,000.

(SEE INSTRUCTIONS ON PAGE 4.)

File No.

Assessment List

Page Line

UNITED STATES INTERNAL REVENUE.

RETURN OF ANNUAL NET INCOME OF INDIVIDUALS.(As provided by Act of Congress, approved October 3, 1913.)

RETURN OF NET INCOME RECEIVED OR ACCRUED DURING THE YEAR ENDED DECEMBER 31, 191 .(FOR THE YEAR 1913, FROM MARCH 1, TO DECEMBER 31.)

Filed by (or for) of(Full name of individual.) (Street and No.)

in the City, Town, or Post Office of State of(Fill in pages 2 and 3 before making entries below.)

1.

2.

3.

$

$

$

GROSS INCOME (see page 2, line 12)

GENERAL DEDUCTIONS (see page 3, line 7)

NET INCOME

Deductions and exemptions allowed in computing income subject to the normal tax of 1 per cent.

4.

5.

6.

7.

Dividends and net earnings received or accrued, of corpora-tions, etc., subject to like tax. (See page 2, line 11)

Amount of income on which the normal tax has been deductedand withheld at the source. (See page 2, line 9, column A)

Specific exemption of $3,000 or $4,000, as the case may be.(See Instructions 3 and 19)

Total deductions and exemptions. (Items 4, 5, and 6)

TAXABLE INCOME on which the normal tax of 1 per cent is to be calculated. (See Instruction 3)

$

$

$

$ $

$

$

$

8. When the net income shown above on line 3 exceeds $20,000, the additional tax thereon must be calculated as per schedule below:

INCOME. TAX.

per cent on amount over $20,000 and not exceeding $50,000

2

3

4

5

6

“ 50,000

75,000

100,000

250,000

500,000

75,000

100,000

250,000

500,000

Total additional or super tax

Total normal tax (1 per cent of amount entered on line 7)

Total tax liability

1

“ “ “

“ “ “ “

“ “ “ “

“ “ “ “

“ “




Date

Action


Date Signature

O.K. to print


1.

2.

3.

4.

5.

6.

7.

Total amount derived from salaries, wages, or compensation forpersonal service of whatever kind and in whatever form paid $ $

$

$

$

8.

2

GROSS INCOME.This statement must show in the proper spaces the entire amount of gains, profits, and income received by or accrued to the individual

from all sources during the year specified on page 1.

DESCRIPTION OF INCOME.A. B.

Amount of income on which tax has beendeducted and withheld at the source.

Amount of income on which tax has NOTbeen deducted and withheld at the source.

Total amount derived from professions, vocations, businesses,trade, commerce, or sales or dealings in property, whether realor personal, growing out of the ownership or use of interestin real or personal property, including bonds, stocks, etc.

Total amount derived from rents and from interest on notes,mortgages, and securities (other than reported on lines 5and 6)

Total amount of gains and profits derived from partnershipbusiness, whether the same be divided and distributed or not

Total amount of fixed and determinable annual gains, profits,and income derived from interest upon bonds and mortgagesor deeds of trust, or other similar obligations of corporations,joint-stock companies or associations, and insurance compa-nies, whether payable annually or at shorter or longer periods

Total amount of income derived from coupons, checks, or billsof exchange for or in payment of interest upon bonds issuedin foreign countries and upon foreign mortgages or like obli-gations (not payable in the United States), and also fromcoupons, checks, or bills of exchange for or in payment of anydividends upon the stock or interest upon the obligations offoreign corporations, associations, and insurance companiesengaged in business in foreign countries

Total amount of income received from fiduciaries

Total amount of income derived from any source whatever, notspecified or entered elsewhere on this page

TOTALS

NOTES.—Enter total of Column A on line 5 of first page.

9.

10.

11.

12.

AGGREGATE TOTALS OF COLUMNS A AND B

Total amount of income derived from dividends on the stock or from the net earnings ofcorporations, joint-stock companies, associations, or insurance companies subject to like tax

(To be entered on line 4 of first page.)

TOTAL “Gross Income” (to be entered on line 1 of first page)




Date

Action


Date Signature

O.K. to print


1.

2.

3.

4.

5.

6.

7.

$

3

GENERAL DEDUCTIONS.

The amount of necessary expenses actually paid in carrying on business, but not includingbusiness expenses of partnerships, and not including personal, living, or family expenses

All interest paid within the year on personal indebtedness of taxpayer

All national, State, county, school, and municipal taxes paid within the year (not includingthose assessed against local benefits)

Losses actually sustained during the year incurred in trade or arising from fires, storms, orshipwreck, and not compensated for by insurance or otherwise

Debts due which have been actually ascertained to be worthless and which have been chargedoff within the year

Amount representing a reasonable allowance for the exhaustion, wear, and tear of propertyarising out of its use or employment in the business, not to exceed, in the case of mines, 5per cent of the gross value at the mine of the output for the year for which the computationis made, but no deduction shall be made for any amount of expense of restoring property ormaking good the exhaustion thereof, for which an allowance is or has been made

Total “GENERAL DEDUCTIONS” (to be entered on line 2 of first page)

AFFIDAVIT TO BE EXECUTED BY INDIVIDUAL MAKING HIS OWN RETURN.

I solemnly swear (or affirm) that the foregoing return, to the best of my knowledge and belief, contains a true and complete statement ofall gains, profits, and income received by or accrued to me during the year for which the return is made, and that I am entitled to all the deductionsand exemptions entered or claimed therein, under the Federal Income-tax Law of October 3, 1913.

Sworn to and subscribed before me this

(Signature of individual.)day of , 191

SEAL OFOFFICERTAKING

AFFIDAVIT.

(Official capacity.)

AFFIDAVIT TO BE EXECUTED BY DULY AUTHORIZED AGENT MAKING RETURN FOR INDIVIDUAL.

I solemnly swear (or affirm) that I have sufficient knowledge of the affairs and property ofto enable me to make a full and complete return thereof, and that the foregoing return, to the best of my knowledge and belief, contains a trueand complete statement of all gains, profits, and income received by or accrued to said individual during the year for which the return is made,and that the said individual is entitled, under the Federal Income-tax Law of October 3, 1913, to all the deductions and exemptions entered orclaimed therein.

Sworn to and subscribed before me this(Signature of agent.)

day of , 191

SEAL OFOFFICERTAKING

AFFIDAVIT.

(Official capacity.)

ADDRESSIN FULL

[SEE INSTRUCTIONS ON BACK OF THIS PAGE.]

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